American consumers made over 123 billion payments with debit and credit cards last year. The number of transactions has only grown over the last few years. The trend shows no sign of slowing down either, with more people switching to online shopping.
Small business owners can see the importance of accepting credit and debit. Unfortunately, many feel they can’t accept these payments.
Why? The simple answer is credit card transaction fees. Every card transaction has an associated fee with it.
As a result, letting your customers pay by credit eats into your bottom line.
There is good news. There are many ways for small business owners like you to save on fees.
Understand the Structure of Credit Card Transaction Fees
The first step to lowering credit card fees for merchants is to understand how those fees are structured. What exactly are you paying for?
You’ll likely encounter some one-time fees, such as account set-up and a terminal purchase fee. If you decide to lease your terminal, that may be a recurring payment.
You may also have a monthly payment or an annual processing fee. If you don’t meet your monthly minimum, you may need to pay the difference as well.
Finally, you may need to pay fees to cover your processor’s compliance with the Payment Card Industry standards.
Next, you need to understand how the transaction fees themselves are structured. There are three major plan types:
- Tiered plans
- Flat-fee plans
- Interchange-plus plans
Tiered Plans
Small business owners are often intrigued by tiered plans. That’s because processors will advertise the lowest tier pricing. The plan may initially look like a great deal.
Be sure you dig into the fine print here. Many transactions won’t qualify for the lowest tier pricing, which could mean you’ll end up paying much more. The processor may consider the type of card, the type of transaction, and the dollar amount.
Interchange-Plus Plans
With this type of plan, you’ll pay a fee for the interchange. You’ll then be charged a flat-rate percentage or dollar amount. Some processors will instead assess the interchange fee and a percentage of the transaction.
Flat Fee Plans
A flat fee plan is just what it sounds like. You’ll be charged the same rate for each transaction.
Do keep in mind that many processors offer “flat fee,” but what you’ll pay varies based on the transaction amount. A processor may charge you 2.5 percent or 3 percent on each transaction.
If you have a transaction worth $50, that’s $1.25. The fee will be $2.50 on a transaction worth $100.
You’ll need to look at the fine print on these plans as well. Some processors do have different pricing for certain types of transactions. A card-not-present transaction may cost more, due to the higher likelihood of fraud.
Shop Around for a Better Deal
Now you understand how credit card processing rates work. It's time to start shopping around. Take a look at your current plan. What does your processor charge?
Be sure to compare plans carefully. A tiered plan may look like it will save quite a bit of money, but it could actually end up costing you more.
You can also try negotiating with your current processor. If you’ve been a customer with good standing for some time, they may be willing to give you a better deal. If you find someone offering a better rate, ask them if they’ll match it or sweeten your deal in some way.
Switch from a High-Risk Merchant Account
For some merchants, the cost of accepting credit cards is much higher. These businesses have been deemed “high risk.” Payment processors may want to issue a high-risk merchant account.
These accounts usually come with higher fees. Many industries are considered high-risk, including airlines, financial services, and more.
Most online businesses are considered high-risk. This is partially because of card-not-present transactions. The chances of fraud are much higher.
Chargebacks are also more common in some industries.
If you have a high-risk merchant account, you should still shop around. Your options may be limited, but you may be able to find a lower-cost processor.
Another key may be to switch from a high-risk merchant account. This may not be possible based on your industry. If you’re in a low-risk industry and have good standing, though, you might be able to make the switch.
Offer Customers Digital Payment Solutions
If you’re looking for more tips on saving on your credit card processing fees, iPayment Systems has some suggestions. One of those is adding mobile payments.
Mobile payments still have fees. Accepting Clover or another digital wallet solution can lower fees. It also makes it easier for your customers to pay.
Reduce Transactions
Finally, if you want to save on credit card processing fees, take a look at the types of credit payments you’re processing. Card-not-present transactions and those that are keyed in often have higher costs.
You may also want to introduce a minimum transaction value. That way, you can cover more of your processing fee. Many small businesses will set a $5 or $10 minimum for credit transactions.
Finally, encourage your customers to pay another way. Cash comes with lower costs than debit or credit. A debit transaction usually has lower fees than credit cards.
Let Your Customers Pay Their Way
Credit card transaction fees can put a dent in your bottom line, but you still need to accept card payments. Your customers demand them, after all.
With these tips for lower fees, you can make credit card payments more affordable for your business. Both you and your customers will be glad you did.
Running a small business is tough. Running one on a small budget is tougher. If you’re looking for great advice, check out more of our library.
